J&J baby needs a tonic

Healthcare giant Johnson & Johnson is widely regarded on Wall Street as one of the world's best-managed companies.

Lately, though, the Johnson's baby has been looking less than healthy.

Plans to shut 36 of its 158 factories and cut its global workforce by 4,100, or about 4%, follow several quarters of disappointing earnings. Last week the

New Jersey-based company warned analysts that they should lower their estimates for 1999.

J&J has been hit by currency collapses and has suffered a dramatic fall in sales of its well-known cardiac stent, which is used to unblock arteries.

But the company's real problem lies in growth.

Glenn Reicin of investment bank Morgan Stanley Dean Witter said: 'There hasn't been anything new on the sales side in the past three months. And that has been a general problem with the firm in 1998.' The company needs a hot new drug. Healthcare analyst Gene Gar-giulo believes it is losing out to the likes of Merck and Pfizer because they have better new drug portfolios.

'You don't have a rocket in J&J,' said Gargiulo. 'It has nothing growing in the consumer area, and that represents a third of its earnings. Management has to take a hard look at the research and development effort.

Inefficient 'Compared with Merck and Pfizer, J&J doesn't have the young juice on the basic research bench to develop blockbuster compounds.' Reicin thinks that the restructuring is a step in the right direction.

'J&J works on a decentralised basis with each company operating independently,' he said.

'As a result, there is a lot of inefficient manufacturing capacity.

'Management is now trying to share resources between factories to gain time and money to invest in the top line in future years.' Things should improve for J&J, said Maryann Quinn of investment bank BT Alex Brown.

But she added: 'Closing plants will not necessarily bolster the growth rate over the long-term.